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Call for prudence and patience

Brexit trepidation defines the mood

The market was in a tight range last week, from Monday to Thursday, though we saw mild recovery ahead of the Brexit voting results, on expectations that UK will remain in European Union (EU). On Friday, both the Nifty and Sensex opened with a gap down and Sensex moved down by around 1000 points after UK voted to leave the EU. Later in the day, the market recovered because of value buying at lower levels and Nifty finally closed at 8088.60.

A pug sits on a woman’s lap outside a bar in Edinburgh, Scotland, following the pro-Brexit result of the UK’s EU referendum vote. The vote has stunned and cleaved a section of the world. Pic/AFPA pug sits on a woman’s lap outside a bar in Edinburgh, Scotland, following the pro-Brexit result of the UK’s EU referendum vote. The vote has stunned and cleaved a section of the world. Pic/AFP

On Friday, the US markets closed at 17426 and the S&P 500 VIX which measures the volatility in US markets, shot up by around 49.33 per cent and closed at 25.76 per cent, which indicates absolute volatile days ahead.

In the domestic market, India VIX closed 18.62 per cent, but the volatility spillover can be expected from the US to other, emerging markets. The Brexit took a toll on domestic metal, pharma and IT stocks. It is prudent to stay away from these sectors, especially companies which have direct business tie-ups with the EU zone.

Investors sold equities and basic metals and started accumulating yellow metal. The prices soared to a level of $1362.64 per troy ounce. It can go on in its upward journey further towards $1400 per troy ounce if this continues. The rupee made a low below 68 against the dollar on Friday. Many central banks, including Britain’s central bank authorities are also watching the situation very closely, and, if needed they are ready to infuse liquidity in the short term.

There are analysts who believe that nothing much will happen in the financial market in the short term, because the UK exit will take place post December 2017. Yet others fear the worst to come in the short term, if more EU countries go for exit.

Global CEOs are reassessing their investment strategies and many small companies in the UK may shut shop.

On the technical set up of the Dow Jones, it has support at 17325 and 17120 levels, and, has resistance at 17826 and 18051. A decisive move below 17120 can cause further sell-off, which may not happen in the extreme short term, but can happen slowly and steadily because weekly charts and daily charts are in the sell mode.

Nifty has resistance at 8186 and 8303 levels and has firm support at 7922 and 7850. Like the Dow Jones, a slow and steady decline can be expected.

There is economic data likely to come out next week i.e. from India Bank loan growth and Nikki Manufacturing PMI, US market PMI, Service PMI, GDP growth Rate, US continuing jobless claims and US initial jobless claim are expected from US and from EU zone Business confidence and Consumer confidence data with post-brexit meetings, inflation and unemployment. It is prudent to lighten up your position until we get firm support.

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